Bitcoin (BTC 0.83%) hit an important milestone in February, surpassing $50,000 for the first time since December 2021. The cryptocurrency has gained 120% over the past year as economic optimism led to a rotation into risk assets. More recently, the approval of spot Bitcoin exchange-traded funds has also contributed to its price appreciation.
However, Cathie Wood's Ark Invest sees Bitcoin moving much higher. Ark analysts have proposed a bull-case price target of $1.48 million by 2030, implying 2,860% upside from its current price. Should that estimate prove accurate, $10,000 invested in Bitcoin today would be worth about $296,000 by the end of the decade.
Here's what investors should know about this cryptocurrency.
Bitcoin has produced superior returns compared to other asset classes
Bitcoin has been a phenomenal investment over the last five years. In fact, investors would have been hard-pressed to find a better place to put their money. The cryptocurrency returned 1,140% between January 2019 and January 2024, compounding at 65% annually.
That monster growth easily tops other major asset classes. During the same five-year period, commodities returned 5.4% annually, emerging market equities returned 1.4% annually, the S&P 500 returned 14.3% annually, U.S. fixed income returned 0.8% annually, and high-yield corporate bonds returned 4.4% annually, according to Morgan Stanley.
Better yet, Bitcoin also outperformed those asset classes in four of the last five years, meaning its robust returns were not driven by one exceptionally good year.
|
Asset Class |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|
|
Bitcoin |
85% |
309% |
61% |
(65%) |
154% |
|
Commodities |
10% |
(3%) |
31% |
21% |
(4%) |
|
Emerging markets |
20% |
15% |
1% |
(18%) |
10% |
|
S&P 500 |
29% |
16% |
27% |
(19%) |
24% |
|
U.S. fixed income |
8% |
7% |
(1%) |
(12%) |
6% |
|
U.S. high-yield corporate bonds |
15% |
7% |
5% |
(11%) |
13% |
Data source: YCharts, Dow Jones Commodity Index, Dow Jones Emerging Markets Index, S&P U.S. Aggregate Bond Index, and S&P U.S. High-Yield Corporate Bond Index. All percentages have been rounded to the nearest whole number.
As shown in the table, Bitcoin was consistently a rewarding investment over the last five years. It was also a volatile investment. The cryptocurrency fell more than 50% on three occasions. But patient investors have been well rewarded for enduring that volatility.
According to Ark Invest, "Historically, investors who bought and held Bitcoin for at least five years have profited, no matter when they made their purchases." Bitcoin launched in 2009, so it doesn't have a terribly long history.
Important catalysts for Bitcoin in 2024 (and beyond)
Bitcoin's price depends on supply and demand, like any other asset. But Bitcoin is somewhat atypical because its supply is finite. Specifically, its source code reduces mining rewards by 50% each time 210,000 blocks are added to the blockchain, roughly once every four years. That mechanism is known as Bitcoin halving, and Bitcoin supply is limited to 21 million coins.
To that end, demand is the only variable of consequence where Bitcoin is concerned, and two major catalysts could boost demand in the coming years:
- Spot Bitcoin ETFs: The Securities and Exchange Commission (SEC) recently approved 11 spot Bitcoin ETFs, funds that track the price of Bitcoin. Retail and institutional investors can now get direct exposure to the cryptocurrency without the hassle of specialized exchanges and storage solutions. In short, spot Bitcoin ETFs reduce friction, and they could boost demand in a big way because some of the largest asset managers in the world -- like No. 1 BlackRock and No. 3 Fidelity -- are participating as issuers.
- Bitcoin halving: The next Bitcoin halving event will occur in April. The mining reward will fall from 6.5 Bitcoin per block to 3.25 Bitcoin per block, which will effectively boost demand by reducing selling. Miners currently sell about $12 billion in Bitcoin per year, according to MicroStrategy CEO Michael Saylor. But the next halving event will cut that selling pressure in half, simply because miners will bring in half as much Bitcoin over the next four years.
Ark Invest believes catalysts will drive Bitcoin much higher in the coming years. The firm has outlined three distinct price targets. Its bear case values Bitcoin at $258,500 by 2030, implying 417% upside. The base case values Bitcoin at $682,800 by 2030, implying 1,265% upside. And the bull case values Bitcoin at $1.48 million by 2030, implying 2,860% upside.
Cathie Wood recently told CNBC that the bull case has become more probable following the approval of spot Bitcoin ETFs.
Bitcoin is a worthwhile investment for some investors
Sensational price targets are fun to consider, but investors should focus on facts rather than speculation. In this situation, the facts are straightforward: Bitcoin has been an excellent investment over the last five years, and its price could continue rising as spot Bitcoin ETFs and the next halving event boost demand. However, Bitcoin was also a volatile investment over the last five years, and the cryptocurrency market is rife with regulatory uncertainty.
Patient investors comfortable with those drawbacks could consider keeping a small percentage of their portfolios in Bitcoin, provided they are willing to hold the cryptocurrency for at least five years. I would personally limit my initial exposure to 5% at most.
